Closer to Haven? New German Tax Planning Opportunities

Transcrição

May 8, 2006
Closer to Haven? New German
Tax Planning Opportunities
by Wolfgang Kessler and Rolf Eicke
Reprinted from Tax Notes Int’l, May 8, 2006, p. 501
(C) Tax Analysts 2006. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
Volume 42, Number 6
Closer to Haven? New German Tax
Planning Opportunities
by Wolfgang Kessler and Rolf Eicke
Wolfgang Kessler is the director of the tax
department of the business and economics faculty at the University of Freiburg and a partner with Ernst & Young in Freiburg, Germany.
Rolf Eicke is his assistant at the tax department of the University of Freiburg. E-mail:
[email protected] and
[email protected].
Table of Contents
I.
Anti-Treaty-Shopping Rule . . . . . . . . .
A. Prerequisites . . . . . . . . . . . . . . . . . . .
B. Legal Consequences . . . . . . . . . . . . . .
C. Case Law . . . . . . . . . . . . . . . . . . . . .
D. Tax Planning After Hilversum II . . . .
II. Antiabuse Rule . . . . . . . . . . . . . . . . . .
A. Prerequisites . . . . . . . . . . . . . . . . . . .
B. Legal Consequences . . . . . . . . . . . . . .
C. Case Law . . . . . . . . . . . . . . . . . . . . .
D. Future Tax Planning . . . . . . . . . . . . .
III. Relationship Between the Rules . . . . .
IV. Implications of the EC Law . . . . . . . .
V.
LOB Clauses in Tax Treaties . . . . . . . .
A. LOB Clauses in German Tax Treaties .
B. LOB Clauses in U.S. Tax Treaties . . . .
VI. Conclusion . . . . . . . . . . . . . . . . . . . . . .
Tax Notes International
503
504
505
505
506
508
508
509
509
514
514
515
515
516
517
519
T
ime and again, a decision of the German Federal Tax Court (Bundesfinanzhof, or BFH)
makes an international tax planner’s heart beat
faster. Such a cause for celebration occurred on May
31, 2005, when the BFH repealed its strict view on
the German anti-treaty-shopping rule in the landmark Hilversum II decision. (For prior coverage, see
‘‘German Tax Court Revamps Treaty Shopping
Law,’’ Tax Notes Int’l, Oct. 10, 2005, p. 122, and
‘‘German Tax Authorities Disregard Hilversum II
Ruling,’’ Tax Notes Int’l, Feb. 27, 2006, p. 677.) From
a tax planner’s point of view, the decision creates
more legal security and additional planning opportunities. That’s good news for U.S. investors in
Europe. U.S. multinational corporations (MNCs) are
the biggest beneficiaries because EU countries such
as the Netherlands,1 Luxembourg,2 Belgium,3 and
Ireland4 belong to the most favorable tax havens for
1
Rosmalen, ‘‘The Netherlands: The Preferred Country to
Establish an Intermediate Holding Company,’’ 32 Tax Planning International Review (2006), p. 21; Müller, The Netherlands in International Tax Planning (2005), p. 145.
2
Warner, Luxembourg in International Tax Planning
(2004), p. 8.
3
Vanhaute, Belgium in International Tax Planning (2004),
p. 173.
4
Haccius, Ireland in International Tax Planning (2004), p.
1368.
May 8, 2006
•
501
Special
Reports
Special Reports
50
45
40
Source:
Bureau of Economic Analysis
(BEA).
MOFA:
Majority-Owned Foreign Affiliate
35
30
* U.S. dollars, in billions
** in particular, Cayman Islands
25
20
15
10
2001
2002
2003
N
Be
et
he
rla
nd
s
rm
ud
a
Lu Irel
xe an
U.
m d
K.
bo
C
u
ar Sw
itz rg
ib
be
e
an rlan
d
Is
la
n
Si ds
ng **
ap
o
Be re
l
H gium
on
g
Ko
ng
cf
.G
er
m
an
y
5
0
U.S. MNCs.5 Hence, repatriating U.S. profits from
Europe is easier since the sun set on IRC section
965.6
Every tax jurisdiction is forced to protect itself
against abuse. The weapons of the German tax
5
Those facts are based on BEA data. It has been continuously pointed out by Tax Analysts’ economic correspondent
Martin A. Sullivan in ‘‘U.S. Multinationals Move More Profits
to Tax Havens,’’ Tax Notes Int’l, Feb. 16, 2004, p. 589;
‘‘Shifting of Profits Offshore Costs U.S. Treasury $10 Billion
or More,’’ Tax Notes Int’l, Oct. 4, 2004, p. 13; ‘‘Latest U.S. IRS
Data Show Jump in Tax Haven Profits,’’ Tax Notes Int’l, Oct.
18, 2004, p. 202; ‘‘Data Show U.S. Companies Shifting Profits
to Tax Havens,’’ Tax Notes Int’l, Sept. 20, 2004, p. 1035; ‘‘The
Truth About Offshore Outsourcing and Profit Shifting,’’ Tax
Notes Int’l, Mar. 15, 2005, p. 951; ‘‘Tax Amnesty International:
U.S. Relief for Prodigal Profits,’’ Tax Notes Int’l, May 26, 2006,
p. 742; ‘‘Data Show Europe’s Tax Havens Soak Up U.S.
Capital,’’ Tax Notes Int’l, Feb. 11, 2002, p. 551.
6
Kessler and Eicke, ‘‘Arbeitsplätze aus dem Steuerparadies:
Neue US-Subpart F-Regel schafft Anreize zur Repatriierung
von Gewinnen aus Tax Havens in die USA — Ein Vorbild für
Deutschland?’’ Internationales Steuerrecht (2006), p. 1.
502 • May 8, 2006
regime are the general antiabuse rule in section 42
AO (Abgabenordnung, or the General Fiscal Code)
and the anti-treaty-shopping rule7 in section 50d(3)
EStG (Einkommensteuergesetz, or the German Income Tax Code). The latter applies only to the abuse
7
‘‘Treaty Shopping has been described as the situation
where a person who is not entitled to the benefits of a tax
treaty makes use — in the widest meaning of the word — of
an individual or of a legal person in order to obtain those
treaty benefits that are not available directly.’’ Larking, IBFD
International Tax Glossary, 4th ed. (2001), p. 367. Also see the
detailed report on treaty shopping in Haug, ‘‘The United
States Policy of Stringent Anti-Treaty-Shopping Provisions: A
Comparative Analysis,’’ 29 Vand. J. Transnat’l L. 191 (1996);
Streng, ‘‘Treaty Shopping: Tax Treaty ‘Limitation of Benefits’
Issues,’’ 15 Houston Journal of International Law 1, 4 (1992);
Panayi, ‘‘Limitation on Benefits and State Aid,’’ European
Taxation (2004) pp. 83, 84; Petkova, ‘‘Treaty Shopping — The
Perspective of National Regulators,’’ Intertax (2004) pp. 543,
544; Becker and Thömmes, ‘‘Treaty shopping and EC Law,’’
European Taxation (1991) p. 173; Becker and Thömmes,
‘‘Treaty Shopping und EG-Recht — Kritische Anmerkungen
zu Art. 28 des neuen deutsch-amerikanischen Doppelbesteuerungsabkommens,’’ Der Betrieb (1991), p. 566.
Net Income of U.S. MOFAs in Tax Havens*
Special Reports
In general, the legislation responds to the two
major evils for tax jurisdictions. Those are, on one
hand, the increase of passive international holding
companies as well as finance companies and, on the
other hand, the rise of ever-changing tax avoidance
strategies. While common-law countries apply the
substance-over-form doctrine in those cases, civil
law countries like Germany focus on the abuse
itself.11
The question of whether there has been an abuse
of benefits for tax purposes was the subject of many
decisions of the BFH, including, for example, the
Dublin Docks cases, the Delaware decision, the
Dutch Foundation cases, and the Hilversum decisions.12
8
Wassermeyer in: Debatin and Wassermeyer, DBA, article
1 MA, note 65.
9
Kessler, ‘‘Grundlagen der Steuerplanung mit Holdinggesellschaften,’’ in: Grotherr, Handbuch der Internationalen
Steuerplanung, (2003), pp. 159, 177; Dreβler, Gewinn- und
Vermögensverlagerungen in Niedrigsteuerländer und ihre
steuerliche Überprüfung (2000), p. 288; Füger, ‘‘Probleme und
Zweifelsfragen der Missbrauchsvorschriften bei beschränkter
Steuerpflicht,’’ in: Grotherr, Handbuch der Internationalen
Steuerplanung (2003), pp. 785, 787; Frotscher, Internationales Steuerrecht (2005), p. 49; Hahn-Joecks in: Kirchhof,
Söhn, and Mellinghoff, Einkommensteuergesetz — Kommentar, section 50d, note A 30; Reith, Internationales Steuerrecht
(2004), p. 168.
10
Strunk, ‘‘Erstattung der Kapitalertragssteuer bei zwischengeschalteter ausländischer Basisgesellschaft,’’ Internationale Wirtschaftsbriefe (2005), Gruppe 2, p. 1253, shows
what benefits those legal consequences might have and how
to construct a tax plan by triggering the anti-treaty-shopping
rule and the antiabuse rule on purpose.
11
Haug, ‘‘The United States Policy of Stringent AntiTreaty-Shopping Provisions: A Comparative Analysis,’’ 29
Vand. J. Transnat’l L. (1996), p. 191; Hundt, ‘‘Entwicklung
des deutschen Miβbrauchsverständnisses bei grenzüberschreitenden Gestaltungen,’’ in: Gocke, Gosch, and Lang,
Festschrift für Franz Wassermeyer (2005), p. 153; Streng,
‘‘Treaty Shopping: Tax Treaty ‘Limitation of Benefits’ Issues,’’
15 Houston Journal of International Law (1992), p. 1; Panayi,
‘‘Limitation on Benefits and State Aid,’’ European Taxation
(2004), pp. 83, 84.
12
For an overview, see Kessler and Eicke, ‘‘Neue Gestaltungsmöglichkeiten im Lichte des Treaty-Shoppings,’’ Praxis
Inbound
Outbound
Section 42 AO
Hilversum I and II Delaware decision
Dutch Foundation Dublin Docks I, II,
I and II
and III
Section 50d(3)
EStG
Hilversum I and II
This article presents new tax planning opportunities for international investors in Germany on the
basis of those landmark decisions, drawing particular attention to the latest Hilversum II decision.
After all, the BFH burnished the cliff into a rock
in the everlasting troubled waters of German international taxation.
I. Anti-Treaty-Shopping Rule
Treaty shopping is widely regarded as a legitimate instrument of international tax planning
based on the notion that taxpayers should be free to
structure their economic actions in ways that are
most beneficial to them.13 Yet distinguishing between legitimate and abusive tax planning is a task
that legislatures and courts around the world face
continuously.
The creation of the German anti-treaty-shopping
rule of section 50d(3) EStG14 was the legislature’s
response to the so-called Monaco decision of the
BFH.15 In that highly controversial16 decision, the
court held that the existing general antiabuse rule of
Internationale Steuerberatung (2006), p. 23; Niedrig, ‘‘Substanzerfordernisse bei ausländischen Gesellschaften,’’ Internationales Steuerrecht (2003), p. 474; Ritzer and Stangl,
‘‘Aktuelle Entwicklungen bei den steuerlichen Anforderungen
an die Zwischenschaltung ausländischer Kapitalgesellschaften,’’ Finanz-Rundschau (2005), p. 1063; Kraft, ‘‘Finanzierungsstrukturen im internationalen Konzern auf dem
Prüfstand der höchstrichterlichen Rechtsprechung,’’ Internationales Steuerrecht (2000), p. 11.
13
Haug, ‘‘The United States Policy of Stringent AntiTreaty-Shopping Provisions: A Comparative Analysis,’’ 29
Vand. J. Transnat’l L. (1996), pp. 191, 198.
14
Today’s treaty shopping rule in section 50d(3) EStG used
to be section 50d(1a) EStG. The decision applied to the latter,
which has the same wording as the current version. An
analysis of the old version can be found in Thömmes and
Eicker, ‘‘Limitation of Benefits: The German View — Sec.
50d(1a) Individual Income Tax Act and EC Law Issues,’’ 39
European Taxation (1999), p. 9.
15
BFH decision of October 29, 1997, Federal Tax Bulletin
II (1998), p. 235.
16
Wassermeyer in: Debatin and Wassermeyer, DBA, article 1 MA note 65.
(Footnote continued in next column.)
May 8, 2006
•
503
of benefits derived from double tax treaties (socalled treaty shopping)8 or EC law (so-called directive shopping).9 Those two belong to the most dangerous cliffs tax planners have to sail around when
dealing with German international tax law. They
both fiscally ignore any tax planning that is merely
motivated by tax savings — that is, by measures
that otherwise would not be considered and are
therefore exclusively planned to circumvent the
wording of the tax provision.10
Special Reports
A. Prerequisites
The rule provides that treaty benefits must be
denied if the following three-part test is fulfilled
cumulatively:19
• The shareholder of the corporation eligible for
treaty benefits would not be entitled to receive
the benefits if he or she received the income
directly.
• There are neither justifiable economic nor any
other nontax reasons for the interposition of the
corporation.
• The interposed corporation does not conduct
any active business.
To a large extent, those criteria are the codification of the so-called oasis jurisdiction of the BFH.20
To avoid being trapped by that rule, it is essential
to know how many economic reasons and how much
business activity is required for a foreign holding
company — in short, how much substance is necessary. Yet, if there are any economic reasons or if
there is any business activity, the anti-treatyshopping rule doesn’t apply. As a result, an international tax planner must wonder where to draw the
line between a passive letterbox company and an
active holding company.
At the end of the day, only an in-depth look at all
of the criteria can answer that question. There are
interdependencies between economic reasons and
business activities. In practice, economic reasons
often cannot be verified without simultaneously
providing evidence of business activity.
1. Economic Reasons
Unfortunately, there is no sharp line between
eligible economic or other justifiable nontax reasons
and those that trigger the anti-treaty-shopping rule.
However, case law suggests that the formation of a
company constitutes an economic reason if it is
either used as the headquarters of a worldwide
operating group21 or to acquire major company
shares in the home country of the target companies,22 or if it has the purpose of acquiring and
financing at least two subsidiaries.23
Economic or other nontax reasons have been
rejected by case law in situations when the interposition was merely:
• motivated by tax savings;24
• to limit the risk of liability;25
• to secure assets in times of crisis;26
• when the company exclusively held assets without any further activities;27 or
• when the company only held shares of another
corporation to finance the latter with debt.28
2. Business Activity
A company’s business activity requires more than
passive asset management. Generally, holding only
17
Kramer, ‘‘Host Country Germany,’’ 22 Tax Planning
International Forum (2001), March, pp. 16, 17; Schaefer and
Vree, ‘‘German Court Clarifies Substance Standard Under
Antiabuse Rules,’’ Tax Notes Int’l, Aug. 12, 2002, p. 757; very
critical Wassermeyer in: Debatin and Wassermeyer, DBA,
article 1 MA note 65.
18
II (1998), p. 235.
19
Even though the wording suggests that there is a cumulative link between all three criteria, the German tax authorities maintain that a company can only apply for a reduction/
exemption if it can demonstrate that there is an economic
reason and a business activity. See Thömmes and Nakhai,
‘‘New Case Law on Anti-Abuse Provisions in Germany,’’ 33
Intertax (2005), p. 74; Hahn-Joecks in: Kirchhof, Söhn, and
Mellinghoff, Einkommensteuergesetz — Kommentar, sec. 50d
note G1.
20
BFH decision of January 28, 1992, Federal Tax Bulletin
II (1993), p. 84; Luttermann, ‘‘Die Rechtsprechung des
Bundesfinanzhofes zur Anerkennung von Basisunternehmen
im Internationalen Steuerrecht,’’ Internationales Steuerrecht
(1993), pp. 153, 155; Bosch, ‘‘Gedanken zur Missbrauchsvermutung des [section] 42 AO bei Zwischenschaltung einer
Basisgesellschaft aus Sicht der steuerlichen Betriebsprüfung,’’ Internationales Steuerrecht (1998), pp. 393, 395.
504 • May 8, 2006
21
II (1975), pp. 553, 555; Flick, ‘‘Deutsche Aktivitäten von
Ausländern über ausländische Zwischengesellschaften und
die Miβbrauchsgesetzgebung des [section] 50d Abs. 1a EStG,’’
Internationales Steuerrecht (1994), pp. 223, 224.
22
BFH decision of July 29, 1976, Federal Tax Bulletin II
(1977), pp. 261, 263.
23
II (1992), pp. 1026, 1028.
24
(1977), pp. 263, 264.
25
BFH decision of August 27, 1997, Federal Tax Bulletin II
(1998), p. 163. Yet, in the more recent Dutch Foundation II
case (BFH decision of November 17, 2004, Deutsches Steuerrecht Entscheidungen (2005), p. 580), the court accepted the
planning in spite of the fact that one reason was to limit the
liability.
26
BFH decision of March 5, 1986, Federal Tax Bulletin II
(1986), pp. 496, 498.
27
(1977), pp. 263, 264.
28
BFH decision of December 9, 1980, Federal Tax Bulletin
II (1981), pp. 339, 341.
section 42 AO did not apply to nonresidents. It found
that the establishment of a foreign subsidiary was
beyond the scope of the German tax jurisdiction.17
The BFH later overruled its own decision,18 and the
legislature eventually created what is now section
50d(3) EStG.
Special Reports
29
In an obiter dictum in Hilversum II, the BFH left that
question open. Notably, holding only one participation does
not trigger the antiabuse rule if there are economic reasons to
do so. See Kessler and Eicke, ‘‘Neue Gestaltungsmöglichkeiten im Lichte des Treaty-Shoppings,’’ Praxis Internationale
Steuerberatung (2006), pp. 23, 27.
30
Niedrig, ‘‘Substanzerfordernisse bei ausländischen Gesellschaften,’’ Internationales Steuerrecht (2003), pp. 474, 480,
with further references to the ‘‘Basisgesellschaftsrechtsprechung’’ of the BFH.
31
Yet, in Hilversum II, the BFH put a lot of emphasis on
the fact that other group members performed operating
activities in the Netherlands, the country in which the
disputed company resided. However, the legal background for
this remains unclear. See Kessler and Eicke, ‘‘Neue Gestaltungsmöglichkeiten im Lichte des Treaty-Shoppings,’’ Praxis
Internationale Steuerberatung (2006), pp. 23, 27.
32
Jacobs,
Internationale
Unternehmensbesteuerung
(2002), p. 508.
33
Eilers, ‘‘Substanzerfordernis an ausländische Finanzierungsgesellschaften,’’ in: Gocke, Gosch, and Lang,
Festschrift für Franz Wassermeyer, (2005), pp. 323, 328.
34
Cf. II.C.ii and III.C.iii.
b. Not just formally interposed
Also, the company must not only be formally
interposed with the intention of enforcing the directions of the principal company of the group.35 In
practice, this prerequisite can be easily met by a
simple reorganization. The company — located, for
example, in a group-owned ‘‘office hotel’’ — could be
put in charge of performing tax arbitrage for the
entire group.36 Most importantly, the company must
have the last word when it comes to decisions
directly related to the company. Thus, the company
must not just carry out decisions made at the group
headquarters.37
B. Legal Consequences
By triggering the anti-treaty-shopping rule, the
taxpayer loses all tax benefits arising out of either
EC law, particularly the parent-subsidiary directive,
or a double tax treaty (DTT). Yet, contrary to section
42 AO, the interposed company is not disregarded
for tax purposes.38
The structure of the anti-treaty-shopping rule
largely resembles a limitation on benefits (LOB)
clause in DTTs.39 By contrast, a letterbox company
under an LOB clause is disregarded for tax purposes.40
C. Case Law
1. Hilversum I
A Bermuda resident (G, 85 percent), an Australian resident (H, 7.5 percent) and a U.S. resident (B,
7.5 percent) were shareholders of a Bermuda-based
35
Menck, ‘‘Internationale Steuerarbitrage — zu einem
BFH-Urteil,’’ Internationales Steuerrecht (2002), p. 807; Niedrig, ‘‘Substanzerfordernisse bei ausländischen Gesellschaften,’’ Internationales Steuerrecht (2003), pp. 474, 477,
480.
36
For an in-depth look on international tax arbitrage in
the aftermath of the Delaware decision, see Menck, ‘‘Internationale Steuerarbitrage — zu einem BFH-Urteil,’’ Internationales Steuerrecht (2002), p. 807.
37
Niedrig, ‘‘Substanzerfordernisse bei ausländischen Gesellschaften,’’ Internationales Steuerrecht (2003), pp. 474, 480.
38
Lieber, Internationale Wirtschaftsbriefe (2005), Fach 3a,
Gruppe 1, pp. 1088, 1089; Strunk, ‘‘Erstattung der Kapitalertragssteuer bei zwischengeschalteter ausländischer Basisgesellschaft,’’ Internationale Wirtschaftsbriefe (2005), Gruppe 2,
pp. 1253, 1254.
39
Berman and Hynes, ‘‘Limitation on Benefits Clauses in
U.S. Income Tax Treaties,’’ 29 Tax Management International
Journal (2000), p. 692; Kofler, ‘‘Treaty Shopping, Quota
Hopping und Open Skies,’’ in: Lang and Jirousek, Praxis des
Internationalen Steuerrechts, (2005), p. 211.
40
That is not necessarily a disadvantage, as shown by
Strunk, ‘‘Erstattung der Kapitalertragssteuer bei zwischengeschalteter ausländischer Basisgesellschaft,’’ Internationale Wirtschaftsbriefe (2005), Gruppe 2, p. 1253.
May 8, 2006
•
505
one participation doesn’t suffice.29 Thus, it is required that more than one major participation is
held and managed.30 The activity must be performed
by the company applying for the benefits. It is
generally not possible to impute activities of other
group members.31
a. No letterbox company
A company is not eligible for benefits if it turns
out to be a mere letterbox company. The main
characteristics of a letterbox company are a minimum of substance — figuratively, only the company
nameplate on the front door of an office building. In
most cases, the tasks of the company are fulfilled by
the parent or other affiliated companies.32 The basic
test to determine letterbox status is whether the
substance of the holding company is consistent with
the function it serves.33 In most cases, there is
interdependence between the substance and the
function. The more substance a company has, the
more one can assume that it fulfills its function.
To carry out a specific function, the company must
have sufficient personnel and equipment, such as its
own offices and means of communication. The traditional view deems the disputed company to be a
letterbox company if it depends on support for personnel and the items mentioned above. Those prerequisites have become particularly interesting because of the developments in the cases Hilversum II
and Dutch Foundation II, discussed below.34 In both
cases, the companies in question lacked anything
that used to be the minimum standard for an eligible
company under the anti-treaty-shopping rule — no
employees, no own office, and no telephone or fax
lines.
Special Reports
The court found that B.V. had neither any business activity nor any economic reason for the interposition of the company; therefore, it applied the
anti-treaty-shopping rule of what is today section
50d(3) EStG.45 Hence, the presumption that the
company was only formally interposed could not be
disproved at any time.46 That other group companies
were operating very actively in the Netherlands was
not relevant to the court.47 As a result, the court
refunded only the difference between the nontreaty
rate of 25 percent and the treaty rates of 10 percent
(under the Australia-Germany treaty for H) and 15
percent (under the Germany-U.S. treaty for B). G
did not get reimbursed because there is no
Bermuda-Germany treaty.
41
Schaefer and Vree, ‘‘German Court Clarifies Economic
Substance Under Antiabuse Rules,’’ Tax Notes Int’l, Aug. 12,
2002, p. 757.
42
Section 43(b)(1) EStG.
43
The zero rate under the EC parent-subsidiary directive
was not in force at that time. Now, profit distributions by a
German subsidiary to an EC holding company are generally
tax-free according to the parent-subsidiary directive (section
8(b)(1) KStG (Corporate Tax Code)). However, an amount
equivalent to 5 percent of the dividend income is to be treated
as a nondeductible business expense that may not reduce the
income of the recipient holding company (section 8(b)(5)
KStG). Thus, only 95 percent of the dividend income received
by the EC holding company is tax-free. In contrast, all costs
incurred on the investment in a subsidiary company may be
deducted for tax purposes.
44
The agency was closed on December 31, 2005. Most of
the tasks are now performed by the Bundeszentralamt für
Steuern (BZSt).
45
BFH decision of March 20, 2002, Internationales Steuerrecht (2002), p. 597.
46
Jacob and Klein, Internationales Steuerrecht (2002), p.
599; Füger, ‘‘NL-Zwischenholding: Steuerentlastung oder Gestaltungsmissbrauch,’’ Praxis Internationale Steuerberatung
(2002), pp. 291, 292; Lieber, Internationale Wirtschaftsbriefe
(2002), Fach 3a, Gruppe 1, pp. 1029, 1034.
47
Hey, ‘‘German Tax Court Revamps Treaty Shopping
Law,’’ Tax Notes Int’l, Oct. 10, 2005, p. 122, at 124.
506 • May 8, 2006
2. Hilversum II
The shareholders in Hilversum II were almost
identical with those in Hilversum I. In Hilversum II,
two sister companies (B.V. I and B.V. II) of the
disputed company in Hilversum I claimed for the
benefits provided by the Germany-Netherlands tax
treaty, thus the reimbursement of the dividend withholding tax that exceeded 5 percent.48 The shareholder structure was very similar despite the minor,
but not crucial, difference that both B.V.s were held
by a company located in the Dutch Antilles.
In the course of the group’s expansion, the two
B.V.s were outsourced to hold participations for the
entire group. Both were located in the Dutch ‘‘media
Mecca’’ of Hilversum in offices of an affiliated company. Neither of the two B.V.s in question had its
own telecommunication lines or personnel. Each of
them held a German GmbH participation and other
European and non-European participations. That
was a significant difference to Hilversum I, in which
only one German GmbH participation was held.
Other affiliated companies of the group operated
actively in the entertainment business in the Netherlands, which was the core operational location for
the group at large. Yet the disputed companies did
not perform any active business.
The court found that the B.V.s were not merely
letterbox companies, because their existence was
justified by the following economic reasons:
• the participations were held permanently;
• the companies were functionally independent;
• the outsourcing of the holding activities into an
interposed corporation was part of the groupwide strategy; and
• the interposed company was part of an active
group because other group companies operated
in the Netherlands.
In contrast to Hilversum I, the court put a lot of
emphasis on the latter.49 It remains the court’s
secret what the legal roots are and if there is any
imputation of activities.50
D. Tax Planning After Hilversum II
From a tax planner’s point of view, Hilversum II
facilitates international transactions. Most striking
48
For an in-depth analysis of this decision in Tax Notes
Int’l, see Hey, supra note 47. See also Ritzer and Stangl,
‘‘German Tax Authorities Disregard Hilversum II Ruling,’’
Tax Notes Int’l, Feb. 27, 2006, p. 677.
49
Miles, ‘‘Intermediary Dutch Holding Company Qualifies
for Parent/Subsidiary Directive Relief,’’ 32 Tax Planning
International Review (2005), pp. 16, 17.
50
Hey, supra note 47, at 125.
holding company, G Ltd. G-Ltd. owned an interposed
Dutch company (B.V.) that held a German GmbH.41
B.V. claimed a refund of dividend withholding tax42
to the extent that the withholding tax exceeded the
5 percent under the Germany-Netherlands tax
treaty at the time of the distribution.43 The German
Federal Tax Agency (Bundesamt für Finanzen)44
denied the request as it deemed the B.V. to be a
letterbox company as B.V. had neither its own offices
nor its own telephone lines. B.V. used the offices and
telecommunication facilities of a sister company and
was represented by a shared-director, a managing
director who was in charge of several group companies. There were no other employees.
Special Reports
G-Ltd. Bermuda
Bermuda
dividends
other (active)
companies
B.V. (NL)
Netherlands
dividends
GmbH I Germany
Germany
is that a company can be accepted for tax purposes
without using an office or telecommunication lines
or having personnel. In any event, it is highly
recommended that the holding company be located
in the country of the core business activity.51 Against
that background, the policy of the group to hold
participations permanently through an interposed
holding is an important new factor for the BFH to
accept the planning.52
There is one more surprise hidden in the wording
of the decision. In its obiter dictum, the court considered whether a company holding only a single
participation could be eligible under the anti-treaty-
51
Hey, supra note 47, at 125. See Kessler, Die EuroHolding, 1996, pp. 97 to find the perfect holding location.
52
Jacob and Klein, ‘‘Anmerkung zur BFH-Entscheidung v.
31.5.2005,’’ Internationales Steuerrecht (2005), pp. 711, 713.
shopping rule.53 In other words, one participation
suffices as long as there are economic reasons for
that structure. Although that obiter dictum still
raises some uncertainties, it leads to one more
practice advice: To be safe, take two, even though
one participation might be enough.54
On the basis of the described cases, we assessed
all possible combinations of holding company features. The result is the matrix below in which we
speculated whether the anti-treaty-shopping rule
would apply. Again, if the court finds any economic
reason or business activity, the rule does not apply.
53
Kessler and Eicke, ‘‘Neue Gestaltungsmöglichkeiten im
Lichte des Treaty-Shoppings,’’ Praxis Internationale Steuerberatung (2006), pp. 23, 25; Breuninger and Schade, GmbHRundschau (2005), pp. 1375, 1377.
54
Hey, supra note 47, at 124; Haarmann, Internationales
Steuerrecht (2005), pp. 713, 720; Jahn, ‘‘Erstattung der Kapitalertragssteuer bei zwischengeschalteter ausländischer Basisgesellschaft,’’ Praxis Internationale Steuerberatung (2005),
pp. 271, 273.
May 8, 2006
•
507
Hilversum I [simplified]
Special Reports
Shareholder G
85%
(Bermuda)
Shareholder H
7.5%
(Australia)
Shareholder B
7.5%
(U.S.)
G-Ltd. Bermuda
G-N.V. Holding Dutch Antilles
B.V. II (Netherlands)
B.V. I (Netherlands)
dividends dividends
GmbH I Germany
further European
corporations
GmbH II Germany
It is important to note the interdependencies between economic reasons and business activities; in
particular, a fact that was originally crucial for the
business activity might have an impact on the
existence of an economic reason and vice versa.55 At
the end of the day, only a comprehensive look at both
legal criteria leads to the solution.
II. Antiabuse Rule
Throughout its existence, the BFH in its antiabuse jurisdiction has reiterated that the mere in-
55
Kessler and Eicke, ‘‘Neue Gestaltungsmöglichkeiten im
Lichte des Treaty-Shoppings,’’ Praxis Internationale Steuerberatung (2006), pp. 23, 25; Jahn, ‘‘Erstattung der Kapitalertragssteuer bei zwischengeschalteter ausländischer Basisgesellschaft,’’ Praxis Internationale Steuerberatung (2005), pp.
271, 273.
508 • May 8, 2006
further
corporations
tention to save taxes does not suffice to trigger the
antiabuse rule; nor can a tax-efficient structure of
finance lead to tax avoidance.56 The court maintains
the principle that the tax law by and large accepts
the civil law framework.57
A. Prerequisites
The wording of the provision is as general as it is
simple. It states that tax-related facts and circumstances should be taxed regardless of the legal
framework if a legal construction is meant to evade
taxation.
56
(1998), p. 163; Niedrig, ‘‘Substanzerfordernisse bei ausländischen Gesellschaften,’’ Internationales Steuerrecht (2003), pp.
474, 475, 478.
57
Schimmele, Ertrag-Steuerberater (2002), p. 347.
Hilversum II [simplified]
Special Reports
58
The lawmaker put forward that this clarification was
necessary because the BFH found in its Dublin Docks jurisdiction that section 42 AO is not applicable when special
provisions apply. See Hahn-Joecks in: Kirchhof, Söhn, and
Mellinghoff, Einkommensteuergesetz — Kommentar, section
50d, note A 59a. That ‘‘clarification,’’ of course, received some
critical comments by the BFH, yet confining itself to an
appropriate judicial self-restraint as can be seen in BFH,
decision of March 20, 2002, Internationales Steuerrecht
(2002), pp. 568, 571. See also Kraft, Internationales Steuerrecht (2002), pp. 571, 572; Schimmele, GmbH-Steuerberater
(2002), pp. 254, 255; Fischer, Finanz-Rundschau (2002), pp.
1080, 1081.
The BFH is right when it finds that a case that is ‘‘CFC
rule proof ’’ cannot be subject to section 42 AO. It would be a
contradiction in terms if the strict and special CFC rule
accepts a tax planning whereas the general antiabuse rule
considers the very same situation as abusive (so-called argumentum a maiore ad minus argument). See Gosch, Deutsches
Steuerrecht (2002), pp. 1351, 1352; Schimmele, ErtragSteuerberater (2002), p. 347.
59
BFH decision of March 20, 2002, Internationales Steuerrecht (2002), pp. 568, 569; BFH, decision of August 19, 1999,
Federal Tax Bulletin II (2001), p. 43.
60
Cf. I.A.2.a.
61
was fulfilled by companies that merely managed
some assets. Thus, an international tax planner
should strongly advise that the interposed company
must not just carry out what has been decided
somewhere else.62
The BFH in its antiabuse
jurisdiction has reiterated that the
mere intention to save taxes does
not suffice to trigger the antiabuse
rule.
In a nutshell, the company is safe for tax purposes
if it acts and performs its business like an independent company, including maintaining the right to
make binding decisions.
B. Legal Consequences
The most striking difference between the antitreaty-shopping and the antiabuse rules are the
legal consequences. While the former denies the
benefits for which the taxpayer has applied, the
latter leads to a ‘‘piercing of the corporate veil’’ for
tax purposes, meaning that all taxable income of the
holding or finance company in question is attributed
to the shareholder of the company.63 Hence, the
transaction will be taxed as if a proper legal structure has been implemented.
C. Case Law
The landmark cases in this area are the Delaware
decision, the Dublin-Docks jurisdiction, and the
Dutch Foundation jurisdiction.
1. Delaware Decision
In this section 42 AO landmark case,64 a German
corporation (GmbH) owned by a U.S. group established a company as a special purpose vehicle in
Delaware. To capitalize the Delaware corporation,
the German corporation took out a loan and deducted the interest thereon as business expenses.
The one and only purpose of the Delaware corporation was to finance the construction of a research
and development center along with the headquarters of another U.S. affiliate in the United States.
There was a tax advantage for the German company
because of a debt-push-down planning. All finance
expenses were deductible, while all dividends would
62
Id.
Gruppe 1, pp. 1088, 1089.
64
BFH decision of March 20, 2002, Federal Tax Bulletin II
(2003), p. 50 and Internationales Steuerrecht (2002), p. 568.
63
May 8, 2006
•
509
The legislature also recently amended a clarification in paragraph 2, codifying that paragraph 1 is
relevant unless its application is explicitly precluded.58
Under the continuous jurisdiction of the BFH,
section 42 AO is fulfilled when the legal framework
of a company is inappropriate considering the economic goals pursued. Moreover, the planning must
be performed solely for tax purposes and not justifiable by economic or other nontax reasons.59
There are several criteria specified in case law to
determine whether section 42 AO is applicable. The
provision applies if the company is either a letterbox
company or acting abusively on the basis of several
other facts.
1. Letterbox Company
The characteristics of a letterbox company are the
same as in the anti-treaty-shopping rule.60 A minimum substance is required that exists if the company
has enough personnel, office space, and telecommunications equipment to accomplish its function.
2. Other Circumstances
If the company is not a letterbox company, other
circumstances may lead to an application of the
antiabuse rule. An important indication is whether
the company has, legally and factually, the last word
in its own affairs. It is also vital that the company
act on its own behalf and trade on its own account.61
Last, the company must not be just formally interposed for tax purposes. In the past, that criterion
Special Reports
affiliate company
100 %
construction of
headquarters and
R&D center
loan
U.S.
U.S. Group
100 %
Delaware Corp. (SPV)
equity
100 %
loan
Germany
interest
German GmbH
have been tax-free.65 This structure took advantage
of the ballooning concept — that is, the timed
separation between financing costs and dividend
income.66 The Delaware corporation had its own
office facilities and telephone and fax lines and had
part-time employees occupied with accounting
tasks.
The BFH did not articulate any doubt that the
corporation had enough substance; hence, it was not
deemed to be a letterbox company. We learned four
lessons from that decision:
• first, given any substance, like an office or
(part-time) personnel, there is no room for the
antiabuse rule;
• second, tax arbitrage is accepted by the BFH —
in case law, the court has even set a safe haven
65
Moreover, the company took advantage of an interest
arbitrage between the high German and the low U.S. interest
level. See Menck, ‘‘Internationale Steuerarbitrage — zu
einem BFH-Urteil,’’ Internationales Steuerrecht (2002), p.
807.
66
Roser, GmbH-Rundschau (2002), pp. 869, 870.
510 • May 8, 2006
Bank
for any tax arbitrage if the definite final tax
liability is above the ‘‘oasis level’’ (currently 25
percent);67
• third, the decision endorsed dividend ballooning as a legal tax planning measure;68 and
• fourth, outsourcing passive activities into a
separate company causes no fiscal detriment.69
Interestingly, the court found that the arrangement was mainly tax-driven, but that even if the key
67
Menck, ‘‘Internationale Steuerarbitrage — zu einem
BFH-Urteil,’’ Internationales Steuerrecht (2002), p. 807. The
oasis level is derived from section 10(6)(no. 2) AStG
(Auβensteuergesetz, or the Foreign Relations Tax Code).
68
Kraft, Internationales Steuerrecht (2002), pp. 571, 572;
Gosch, Deutsches Steuerrecht (2002), pp. 1351, 1352; Fischer,
Finanz-Rundschau (2002), pp. 1080, 1081; Menck, ‘‘Internationale Steuerarbitrage — zu einem BFH-Urteil,’’ Internationales Steuerrecht (2002), p. 807.
69
Gruppe 1, pp. 1029, 1030; Menck, ‘‘Internationale Steuerarbitrage — zu einem BFH-Urteil,’’ Internationales Steuerrecht
(2002), p. 807.
Delaware decision [simplified]
Special Reports
Another controversial issue of this case and the
Dublin-Docks jurisdiction was the relationship between section 42 AO and the German CFC rules in
section 7 et seq. AStG (Auβensteuergesetz, or Foreign
Relations Tax Code). The BFH has repeatedly71
found that section 42 AO prevails over the German
CFC rules;72 yet the practical results for tax purpose
are often the same. This is presumably why the tax
authorities do not have a preference either way.73
2. Dublin-Docks Jurisdiction
The Dublin-Docks cases74 deal with International
Finance and Service Centre (IFSC) companies located in the port area of Dublin.75 From a German
perspective, the tax scheme was popular because it
took advantage of an interplay between the low Irish
tax rate and the old Germany-Ireland tax treaty,
which did not contain an ‘‘activity clause.’’76 The
70
BFH decision of March 20, 2002, Internationales Steuerrecht (2002), pp. 568, 570.
71
II (1992), p. 1026; BFH decision of June 10, 1992, Federal Tax
Bulletin II (1992), p. 1029; BFH decision of January 1, 2000,
Federal Tax Bulletin II (2001), p. 222.
72
The BFH reasoned that section 42 AO logically has to
take priority over the CFC rules due to the different legal
consequences. While the consequence of section 42 AO is that
all earnings of the foreign company are deemed to be profits of
the German parent company denying the company status of
the foreign company for tax purposes, the German CFC rules
accept the foreign company and its earnings as such. Eventually, those earnings are added to those of the German
parent company.
73
Haase, ‘‘Dublin Dock Companies and the German AntiAbuse Provision,’’ 31 Tax Planning International Forum
(2004), October, p. 15.
74
The basic scheme of the Dublin-Docks case is that a
German corporation establishes a foreign subsidiary corporation in Ireland carrying out management and finance activities. The advantage is that all profits on those activities are
subject to the low Irish corporate tax rate. See Wassermeyer
in: Debatin and Wassermeyer, DBA, article 1 MA note 69.
75
The development of Ireland as a financial center is an
impressive example for how an innovative fiscal policy can
result into a major rise of welfare. When Ireland joined the
European Union, it was one of the poorest member states
with one of the lowest growth rates. Because of the IFSC
regime and other incentives, Ireland became a favorite location for MNCs within a decade, creating double-digit growth
rates for the Irish economy. Martin Sullivan calls it ‘‘Ireland’s
rise from rags to riches’’ in ‘‘The U.S.’s Multibillion-Dollar
Subsidy for Ireland,’’ Tax Notes Int’l, July 25, 2005, p. 296.
76
Kraft, ‘‘German-Controlled IFSCs Not Abusive,’’ 40 European Taxation (2000), 288.
IFSC regime was part of the EC state aid rules to
promote business in Ireland.77 It expired on December 31, 2005.
In the latest case (Dublin Docks III),78 a German
financial institution (AG) held participations in two
IFSC companies.79 Contrary to the Delaware decision, the company employed no personnel besides a
statutory board of directors. It was stipulated that
the IFSC companies would be liquidated after a
holding period of two years. The operative management of the Irish companies was outsourced to an
Irish management company (IBI).
If the company is not a letterbox
company, other circumstances
may lead to an application of the
antiabuse rule.
The tax advantage of this scheme was as follows:
The German parent capitalizes the Irish subsidiary,
IFSC, which invested the money. IFSC is subject to
taxation on the earnings with the fairly low Irish tax
rate.
The court accepted the planning as the two years
sufficed to consider the holdings permanent.80 Further, the structure was based on a justified economic
reason because a reasonable businessperson would
be free to decide whether the money would be
invested from the parent or from the subsidiary
company, whether it would be invested domestically
or abroad, and if the profits would be taxed in a
high-tax country or in a low-tax country.81 To cut a
77
Moran, ‘‘Extended Date for Dublin IFSC Projects Boosts
Tax Advantages,’’ 6 Journal of International Taxation (1995),
October, pp. 86, 87; Diamond and Diamond, Tax Havens of the
World — Ireland, (2004), p. 4.
78
BFH decision of February 25, 2004, Internationales
Steuerrecht (2004), p. 527. An earlier account on IFSC companies in light of the German antiabuse rule is Rädler,
Lausterer, and Blumenberg, ‘‘Tax Abuse and EC Law,’’ 6 EC
Tax Review (1997), p. 86.
79
For a detailed analysis of this case, see Thömmes and
Nakhai, ‘‘New Case Law on Anti-Abuse Provisions in Germany,’’ 33 Intertax (2005), p. 74.
80
Thömmes and Nakhai, ‘‘New Case Law on Anti-Abuse
Provisions in Germany,’’ 33 Intertax (2005), pp. 74, 75; Miles,
‘‘Germany/Ireland,’’ 31 Tax Planning International Review
(2004), September, p. 27; Lieber, Internationale Wirtschaftsbriefe (2004), Fach 3a, Gruppe 1, p. 1063; Haase, ‘‘Dublin
Dock Companies and the German Anti-Abuse Provision,’’ 31
Tax Planning International Forum (2004), October, 15.
81
Laule, ‘‘Grenzen internationaler Steurgestaltung im Lichte der Rechtsprechung des EuGH,’’ Internationales Steuerrecht (2003), pp. 217, 221; Philipowski, Internationales
Steuerrecht (2004), pp. 531, 532; Ribbrock, ‘‘Anmerkung zu
(Footnote continued on next page.)
May 8, 2006
•
511
motivation was using tax arbitration to save taxes,
it was not abusive.70 The decision may have frightened the German tax authorities, but it suits international tax planners who can continue to see the
BFH as savior of their domain.
Special Reports
IBI
managed
Ireland
IFSC-Company
10%
dividends
10%
IFSC-Company
dividends
Germany
German Corp.
long story short, there is no rule demanding that
interest earnings and earnings from group reorganization must be taxed in Germany.82 Yet, most
striking in the Dublin Docks cases is that section 42
AO cannot possibly be applicable if the taxpayer
took advantage of a special tax incentive scheme
that is expressly provided for by EC state aid rules.83
BFH Urt. v. 25.2.(2004) — Dublin-Docks,’’ Recht der Internationalen Wirtschaft (2004), pp. 959, 960; Gosch, ‘‘Anmerkung
zu BFH Urt. v. 25.2.(2004) — Dublin-Docks,’’ Deutsches
Steuerrecht (2004), p. 1286.
82
Philipowski, ‘‘Anmerkung zu BFH urteil v. 25.2.2004 —
Dublin-Docks III,’’ Internationales Steuerrecht (2004), pp.
531, 532.
83
Provisions in Germany,’’ 33 Intertax (2005), pp. 74, 75; Wilke,
‘‘BFH hat seine bisherige Rechtsprechung zu den ‘Dublin
Docks-Fällen’ nochmals bestätigt,’’ Praxis Internationale
Steuerberatung (2004), pp. 217, 218; Ritzer and Stangl, ‘‘Aktuelle Entwicklungen bei den steuerlichen Anforderungen an
The lesson to be learned from Dublin Docks III is
that once there are no presumptions toward a letterbox company, section 42 AO does not apply.84 That
decision is consistent with the court’s position in
previous Dublin Docks decisions.85
die Zwischenschaltung ausländischer Kapitalgesellschaften,’’
Finanz-Rundschau (2005), pp. 1063, 1064.
84
Wolff, Internationales Steuerrecht (2004), pp. 532, 533.
85
II (2001), p. 222 and BFH, decision of January 19, 2000,
BFH/NV (2000), p. 824; Kraft, ‘‘Finanzierungsstrukturen im
internationalen Konzern auf dem Prüfstand der höchstrichterlichen Rechtsprechung,’’ Internationales Steuerrecht
(2000), pp. 11, 12. For an analysis of the recent decision of the
Austrian Supreme Administrative Court on IFSCCompanies, see Obermair and Weninger, ‘‘Treaty Shopping
and Domestic GAARs in the Light of a Recent Austrian
Decision on Irish IFS Companies,’’ 33 Intertax (2005), p. 466;
Loukota, Steuer und Wirtschaft International (2005), p. 205.
512 • May 8, 2006
Dublin Docks [simplified]
Special Reports
Dutch Foundation
loan
interest
loan
Netherlands
SPVcompany
SPVcompany
rent
rent
renting
activities
Germany
3. Dutch Foundation Cases
As Hilversum I and Hilversum II are linked to the
anti-treaty-shopping clause, Dutch Foundation I86
and Dutch Foundation II87 are related to the antiabuse rule.
In the 1997 case Dutch Foundation I, several
special purpose vehicle (SPV) companies were outsourced by a Dutch foundation. The SPV companies
performed renting activities in Germany. They did
not have any employees, mailing address, or telephone numbers. The Dutch Foundation gave credits
to each SPV company and collected interest on them.
The BFH regarded the SPV as a functionless base
company and concluded that the interposition was
86
(1998), p. 163.
87
BFH decision of November 17, 2004, Deutsches Steuerrecht Entscheidungen (2005), p. 580.
for tax purposes only.88 The tax advantage of the
structure was that the SPV companies did not have
any taxable income, because they could deduct all
interest payments from their earnings. Another reason for the structure was a limitation of liability.
However, the court did not consider that to be an
essential nontax purpose for the structure. The
result was that all SPV earnings were attributed to
the Dutch foundation for tax purposes.
A similar case was Dutch Foundation II in 2004,
in which the court overruled its Dutch Foundation I
decision. The facts sound like an old story by now.
88
Ritzer and Stangl, ‘‘Aktuelle Entwicklungen bei den
steuerlichen Anforderungen an die Zwischenschaltung ausländischer Kapitalgesellschaften,’’ Finanz-Rundschau (2005),
pp. 1063, 1066; Baranowski, ‘‘Anmerkung zu BFH Urt. v.
17.11.1997 — Stiftungsfall I,’’ Internationale Wirtschaftsbriefe
(1998), Fach 3a, Gruppe 1, pp. 667, 668; Roser, GmbHRundschau (2002), pp. 869, 870.
May 8, 2006
•
513
Dutch Foundation cases [simplified]
Special Reports
D. Future Tax Planning
The bottom line of the discussed cases is that in
the course of its section 42 AO jurisdiction, the BFH
has adopted an increasingly taxpayer-friendly position not only for EU companies (like in the Dublin
Docks cases) but also toward an interposed U.S.
company (as in the Delaware decision). After all, the
decisive criteria of whether the BFH accepts an
intermediate holding company for tax purposes is
the duration of the interposition.91 Thus, with a
permanent interposition, the taxpayer is sailing
within the boundaries of a safe haven, harbored by
the case law of the BFH. There has never been a case
in which the interposition was permanent and section 42 AO applied.92 Nevertheless, at the core of the
concern remains that the decisions have to be made
at the place of the subsidiary company.93
A never-ending controversy is the relationship
between section 42 AO and the German CFC rules in
section 7 et seq. AStG. The good news is that even
for lower taxation abroad, the application of the CFC
rules is barred as long as there is a minimum
amount of substance. The cases show that there can
even be enough substance despite the absence of any
employees.94
89
Ritzer and Stangl, ‘‘Aktuelle Entwicklungen bei den
steuerlichen Anforderungen an die Zwischenschaltung ausländischer Kapitalgesellschaften,’’ Finanz-Rundschau (2005),
pp. 1063, 1066.
90
Breuninger and Schade, GmbH-Rundschau (2005), pp.
1375, 1376.
91
Provisions in Germany,’’ 33 Intertax (2005), 74, 79.
92
Wolff, Internationales Steuerrecht (2004), pp. 532, 540.
93
Provisions in Germany,’’ 33 Intertax (2005), pp. 74, 79.
94
Other than either members of the board of directors who
have outsourced the management (Dublin Docks) or a shareddirector (Dutch Foundation I and II). Nevertheless, it helps to
decrease uncertainty to convince the tax authorities or later
on the tax courts that the director or the CEO is not in charge
for several other companies as well just to be safe.
514 • May 8, 2006
For any future tax planning, one must consider
that the German CFC rules will presumably undergo a fundamental change. The background for
that prediction is the pending European Court of
Justice case Cadbury Schweppes,95 in which the
court will decide whether or not the British CFC
rules comply with EC law. If the British CFC rules
infringe EC law, the very similar German CFC rules
will share their destiny.96 The fear of being trapped
into section 42 AO has eased after Hilversum II,
although it should not be assumed that ‘‘anything
goes’’ for the substance of foreign intermediate holding companies. In any case, it is mandatory and
highly important to request a tax exemption certificate well in advance to obtain the benefits of reduced
withholding taxes under a tax treaty. Any distribution before the certificate is received must be
avoided because the certificate cannot be issued
with retroactive effect.97
The trend shows that the BFH has increasingly
adopted a taxpayer-friendly position in recent years.
For that reason, the odds are good that section 42
AO will not be triggered.
III. Relationship Between the Rules
Another fundamental aspect of the Hilversum II
decision is that it created more legal certainty for a
dispute that has been going on for decades. The BFH
found that the anti-treaty-shopping clause of section
50d(3) EStG, as a special provision, takes precedence over the general antiabuse rule in section 42
AO.98 In the past, that has only been stated as obiter
dictum by the BFH.99 How much it can be taken at
face value in terms of legal certainty depends to
some extent on the point of view the tax authorities
95
ECJ case C-196/04, Cadbury Schweppes, OJ June 26,
2004, C-168, 3.
96
For the latest account on the German CFC rules in the
EC law context, see Schönfeld, ‘‘Quo vadis Hinzurechnungsbesteuerung und EG-Recht — Bestandsaufnahme und neuere Entwicklungen,’’ Internationale Wirtschaftsbriefe (2006),
Fach 3, Gruppe 1, p. 2119.
97
Schaefer and Vree, ‘‘German Court Clarifies Economic
Substance Under Antiabuse Rules,’’ Tax Notes Int’l, Aug. 12,
2002, p. 757.
98
Hey, supra note 47, at 124, welcomes this line of reasoning stating that section 42 AO is too uncertain and too broad
in its nature as an ‘‘all facts and circumstances test’’ to deal
with the specific cases meant to be covered by section 50d(3)
EStG. Still, Lieber, Internationale Wirtschaftsbriefe (2005),
Fach 3a, Gruppe 1, pp. 1088, 1089, puts forward that the BFH
has not per se precluded any application of section 42 AO next
to section 50d(3) EStG.
99
Füger, ‘‘NL-Zwischenholding: Steuerentlastung oder Gestaltungsmissbrauch,’’ Praxis Internationale Steuerberatung
(2002), 291, 293; Lieber, Internationale Wirtschaftsbriefe
(2002), Fach 3a, Gruppe 1, pp. 1029, 1033.
The company did not have any employees or any
telecommunication means. Surprisingly, the BFH
found that the interposition of the SPV companies
was based on organizational and liability reasons,
which this time sufficed to constitute nontax reasons
for the structure.89 Other significant factors were
that the structure was established throughout the
group with all foreign corporations and that the
outsourcing of renting activities into the SPV companies was of a permanent nature.90 The remarkable change of position in Dutch Foundation II had
more than likely a decisive impact on the outcome in
Hilversum II.
Special Reports
IV. Implications of the EC Law
Although the BFH cases shown are essential and
highly important for secure tax planning, the taxpayer must not lose sight of the far-reaching implications of the EC law.
First of all, the influence of the European Court of
Justice on BFH decisions should not be underestimated. In the course of recent decades, the ECJ has
become the guardian of the EC Treaty. As far as the
issues discussed in these articles are concerned, it
particularly rules on the basis of the freedom of
establishment100 (EC Treaty articles 43 and 48). The
ECJ has the final word on all EC-law-related questions of interpretation and enforcement,101 and the
BFH must refrain from any interpretation that
infringes on EC law.102 Thus, in the cases at hand,
any interpretation of the BFH of the anti-treatyshopping rule and the antiabuse rule must comply
with EC law. In the past, the BFH had to fear a
dissenting ECJ opinion in all the cases discussed
above. That fear will continue, constituting nothing
less than a sword of Damocles hanging over the
BFH.103
As far as the described cases are concerned, the
parent-subsidiary directive does not contain a spe-
100
The freedom of establishment principle provides that
an EU member state must not treat a corporation established
in one member state less favorably than a corporation resident in its own territory. For more details, see Sánchez and
Fluxà, ‘‘Transfer of the Seat of and the Freedom of Establishment,’’ 45 European Taxation (2005), p. 219.
101
Stoschek and Peter, ‘‘Section 50d Abs. 3 EStG — erste
Rechtsprechung zu einer verfehlten Missbrauchsvorschrift —
Vereinbarkeit von Section 50d Abs. 3 EStG mit Europarecht?’’
Internationales Steuerrecht (2002), pp. 656, 663; Laule,
‘‘Grenzen internationaler Steurgestaltung im Lichte der
Rechtsprechung des EuGH,’’ Internationales Steuerrecht
(2003), pp. 212, 217; Weber-Grellet, Europäisches Steuerrecht, (2005), p. 177.
102
An updated 2006 checklist on German tax provisions
that potentially infringe EC law can be seen in Kessler and
Spengel, ‘‘Checkliste potenziell EG-rechtswidriger Normen
des deutschen direkten Steuerrechts — Update 2006,’’ Der
Betrieb (2006), Beilage 1, p. 1. See also Rädler, Lausterer, and
Blumenberg, ‘‘Tax Abuse and EC Law,’’ 6 EC Tax Review
(1997), pp. 86, 100.
103
Provisions in Germany,’’ 33 Intertax (2005), p. 74, predict that
the BFH will be more and more inclined to apply in the future
standards set forth by the ECJ without any prior consultation
of that court.
cific anti-treaty-shopping rule, but it contains a
general antiabuse rule in article 1(2).104 It provides
that the directive does not preclude the application
of domestic or agreement-based provisions required
for the prevention of fraud or abuse. However, too
broad an interpretation would violate the rationale
of the directive and the EC freedom of establishment.105 It has been the distinct privilege of the ECJ
to substantiate that clause. According to the ECJ,
abusive tax planning can be sanctioned only by
specific provisions specifically targeting the case in
question.106 Thus, the ECJ does not permit foreign
corporations to be ignored for tax purposes on the
basis of abstract criteria like personnel, business
address, or means of communication.107 That view of
the ECJ might be an explanation for the BFH’s
change of heart in Dutch Foundation II and Hilversum II. As a matter of fact, the plaintiffs in Hilversum II demanded that the case be referred to the
ECJ for a preliminary ruling to ensure that the
interpretation of the BFH of section 50d(3) EStG
complies with EC law. Eventually, because of the
outcome of the decision, there was no longer a need
for that reference. The driving force that prompted
the BFH to refrain from referring the case to the
ECJ might have been the concern that the ECJ
would have imposed on the BFH an even more
liberal interpretation of the domestic anti-treatyshopping and antiabuse rules.
V. LOB Clauses in Tax Treaties
The last resort of governments to deter treaty
shopping are limitations on benefits (LOB) clauses
in tax treaties. One of the first LOB clauses was
article 28 of the Germany-U.S. tax treaty of 1989.
104
For a detailed look at tax avoidance in the European
context, see Almendral, ‘‘Tax Avoidance and the European
Court of Justice: What is at Stake for European General
Anti-Avoidance Rules?’’ 33 Intertax (2005), pp. 562, 569.
105
Provisions in Germany,’’ 33 Intertax (2005), pp. 74, 78;
Thömmes and Eicker, ‘‘Limitation on Benefits: The German
View — Sec. 50d(1a) Individual Income Tax Act and EC Law
Issues,’’ 39 European Taxation (1999), pp. 9, 12.
106
ECJ decision of October 17, 1996 (Denkavit), FinanzRundschau (1996), p. 821; Eilers, ‘‘Substanzerfordernis an
ausländische Finanzierungsgesellschaften,’’ in: Gocke, Gosch,
and Lang, Festschrift für Franz Wassermeyer (2005), pp. 323,
330. See also Thömmes in: Commentary on the Parent/
Subsidiary Directive, article 1, note 2.1; Niedrig, ‘‘Substanzerfordernisse bei ausländischen Gesellschaften,’’ Internationales Steuerrecht (2003), pp. 474, 481; Hahn-Joecks in:
Kirchhof, Söhn, and Mellinghoff, Einkommensteuergesetz —
Kommentar, section 50d, note A 32; Roser, GmbH-Rundschau
(2002), pp. 869, 871.
107
That notion has been reiterated in the current Bosal
decision of the ECJ. ECJ decision of September 18, 2003,
GmbH-Rundschau (2003), p. 1286.
May 8, 2006
•
515
adopt in the future. Yet that sound statement of the
BFH is more than just a ‘‘fallback line’’ for an
international tax planner. For the time being, it can
be relied on to prevent any liability claims on illegal
tax planning.
Special Reports
A. LOB Clauses in German Tax Treaties
The taxpayer will not find any LOB clauses in
Germany’s double tax treaties with the U.S. MNCs’
favorite holding locations of Luxembourg and the
Netherlands. There are, for instance, LOB clauses in
the Germany-U.S. tax treaty and the GermanySwitzerland tax treaty.
Table 1. LOB Clauses in German Tax
Treaties With U.S. MNCs’ Favorite
Holding Countries
Holding Country
LOB Clause
Netherlands
no clause
Luxembourg
no clause
Ireland
no clause
Bermuda
no treaty
Belgium
no clause
Switzerland
Art. 23
Cayman Islands
no treaty
Hong Kong
no treaty
Singapore
Art. 29a
a
The Germany-Singapore tax treaty of 2004 adopted art. 29,
which says: ‘‘This Agreement shall not be interpreted to
mean that a Contracting State is prevented from applying
its domestic legal provisions on the prevention of tax
evasion or tax avoidance.’’ Thus, sec. 42 AO and sec. 50(d)(3)
EStG remain applicable. See also Dörrfuβ and Weidlich,
‘‘Neues DBA zwischen Deutschland und Singapur,’’
Internationales Steuerrecht (2005), pp. 518, 523.
1. Germany-U.S. Treaty
The LOB clause in the Germany-U.S. tax
treaty109 is special because it turned out to be a
trendsetter for all further negotiations of income tax
treaties signed by the United States.110 It is an
108
Article 22 U.S. model treaty.
Germany-U.S. Income and Capital Tax Treaty, signed
on August 29, 1989, entered into force August 21, 1991.
110
Debatin and Endres, The New US/German Double Tax
Treaty (1990), p. 459, and also see the checklist for the right to
claim treaty benefits on p. 471; Haase, ‘‘Limitation-onBenefits-Clause in the U.S./German Double Taxation Treaty,’’
32 Tax Planning International Review (2005), January, pp.
109
ongoing discussion whether or not the clause complies with EC law.111 The provision in article 28 of
the treaty features two major innovations:
• First, there is an active business test112 that is
met if the income meets the connection requirement and if the active German business is
substantial in relation to the U.S. subsidiary.
Even though no substantiality test is provided
in the LOB provision, the test is described in
one of the examples contained in the memorandum of understanding.113
• Second, there is competent authority discretion,114 which grants treaty benefits to taxpayers failing to meet any of the mechanical tests.
Essential factors to be considered are the existence of a clear business purpose for the structure and location of the income-earning entity,
an active trade, and a valid business nexus
between the countries in question.
2. Germany-Switzerland Treaty
The Germany-Switzerland tax treaty115 does not
contain an LOB clause, but it contains an antiabuse
rule in article 23. The rule is not as restrictive as the
26, 27; Debatin, ‘‘Das neue Doppelbesteuerungsabkommen
mit den USA (Teil 2),’’ Der Betrieb (1990), pp. 654, 660;
Debatin, ‘‘Das neue Doppelbesteuerungsabkommen mit den
USA (Teil 1),’’ (Der Betrieb 1990), p. 598; Streng, ‘‘Treaty
Shopping: Tax Treaty ‘Limitation of Benefits’ Issues,’’ 15
Houston Journal of International Law (1992), pp. 1, 23;
Berman and Hynes, ‘‘Limitation on Benefits Clauses in U.S.
Income Tax Treaties,’’ 29 Tax Management International
Journal (2000), pp. 692, 700. See U.S. and German antitreaty-shopping measures in their respective tax treaties in
Haug, ‘‘The United States Policy of Stringent Anti-TreatyShopping Provisions: A Comparative Analysis,’’ 29 Vand. J.
Transnat’l L. (1996), pp. 191, 238, 262; Eilers and Watkins,
‘‘Article 28 of the German-U.S. double taxation treaty of 1989:
An Appropriate Solution to the Treaty Shopping Problem?’’ 20
Tax Planning International (1993), pp. 15, 16.
111
Wassermeyer, article 28 DBA USA, in: Debatin and
Wassermeyer, Doppelbesteuerung (2005), pp. 1, 11; Becker
and Thömmes, ‘‘Treaty Shopping und EG-Recht — Kritische
Anmerkungen zu Art. 28 des neuen deutsch-amerikanischen
Doppelbesteuerungsabkommens,’’ Der Betrieb (1991) p. 566;
Portner, ‘‘Vereinbarkeit der Miβbrauchsklausel im DBA-USA
1989 mit EG-Recht,’’ Internationale Wirtschaftsbriefe (1991),
Fach 8, Gruppe 2, pp. 663, 664; Becker and Thömmes, ‘‘Treaty
Shopping and EC Law,’’ European Taxation (1991), p. 173.
112
Article 28(1c) Germany-U.S. tax treaty.
113
Haase, ‘‘Limitation-on-Benefits-Clause in the U.S./
German Double Taxation Treaty,’’ 32 Tax Planning International Review (2005), January, pp. 26, 27.
114
Article 28(2) Germany-U.S. treaty.
115
Germany-Switzerland Income and Capital Tax Treaty,
signed on August 11, 1971, as amended by the protocol signed
on March 12, 2002, entered into force March 24, 2003.
516 • May 8, 2006
The clause is a vital part of modern U.S. treaty
policy,108 which explains why U.S. treaties contain
more LOB clauses than German treaties do, as can
be seen in tables 1 and 2 below.
Special Reports
116
Debatin, ‘‘Das neue Doppelbesteuerungsabkommen mit
den USA (Teil 2),’’ Der Betrieb (1990), pp. 654, 661.
117
There is no rule like this in other German treaties. It has
its roots in article 14 of the France-Switzerland tax treaty. See
Wassermeyer, article 23, in: Flick, Wassermeyer, Wingert, and
Kempermann, Doppelbesteuerungsabkommen DeutschlandSchweiz, (2004), p. 13.
118
Article 29 Germany-Singapore tax treaty.
119
Zwosta, article 23 DBA-Schweiz, in: Debatin and
Wassermeyer, Doppelbesteuerung (2005), p. 1, 4.
120
Wassermeyer, article 28 DBA USA, in: Debatin and
Wassermeyer, Doppelbesteuerung (2005), p. 1; Menhorn, ‘‘Section 50d Abs. 3 EStG und der stillschweigende Missbrauchsvorbehalt in Doppelbsteuerungsabkommen,’’ Internationales
Steuerrecht (2005), p. 325; Prokisch, article 1 DBA-MA, in:
Vogel and Lehner, DBA (2003), pp. 203, 289.
in the Germany-Netherlands and GermanyLuxembourg treaties, the problem is either solved
based on the good-faith principle (when both contracting states have antiabuse provisions)121 or an
implicit general international antiabuse caveat.122
B. LOB Clauses in U.S. Tax Treaties
To repatriate profits from a German subsidiary over
an interposed holding company, the structure must
also comply with LOB clauses in tax treaties between
the United States and countries in which the holding
companies of U.S. MNCs are located. In that context,
it has been a highly disputed issue whether LOB
clauses between the United States and EC member
states are in conformity with EC law because of the
discriminatory effect on other EC member states.123
That is a major reason why LOB clauses between the
United States and EC member states have become
increasingly complex to avoid conflicts with EC law.124
Because U.S. MNCs in Germany route their dividends from Germany over Luxembourg and the
121
Good-faith principle applies. See Haase, ‘‘Dublin Dock
Companies and the German Anti-Abuse Provision,’’ 31 Tax
Planning International Forum (2004), October, p. 15. See also
Henkel, ‘‘Auslandsaktivitäten inländischer Unternehmen,’’
in: Mössner et al., Steuerrecht international tätiger Unternehmen (2005), pp. 715, 818, who maintains that section 42 AO
does not apply when double tax treaties are involved.
122
Prokisch, article 1 DBA-MA, in: Vogel and Lehner, DBA
(2003), pp. 203, 284; Menhorn, section 50d Abs. 3 EStG und
der stillschweigende Missbrauchsvorbehalt, in: Doppelbsteuerungsabkommen, Internationales Steuerrecht (2005),
pp. 325, 326.
123
Thömmes, ‘‘US-German tax treaty under examination
by the EC Commission,’’ Intertax (1990), p. 605; De Carlo,
Granwell, and van Weeghel, ‘‘An Overview of the Limitation
on Benefits Article of the New Netherlands-U.S. Income Tax
Convention,’’ 34 Tax Management International Journal
(1993), pp. 163, 170; Kofler, ‘‘Treaty Shopping, Quota Hopping
und Open Skies,’’ in: Lang and Jirousek, Praxis des Internationalen Steuerrechts (2005), pp. 211, 218; De Ceulaer, ‘‘Community Most-Favoured-Nation Treatment: One Step Closer to
the Multilateralization of Income Tax Treaties in the European Union?’’ BIFD (2003), p. 493; Craig, ‘‘Open Your Eyes:
What the ‘Open Skies’ Cases Could Mean for the U.S. Tax
Treaties With the EU Member States,’’ BIFD (2003), p. 63;
Panayi, ‘‘Limitation on Benefits and State Aid,’’ European
Taxation (2004), p. 83; Becker and Thömmes, ‘‘Treaty Shopping and EC Law,’’ European Taxation (1991), pp. 173, 175.
124
Kofler, ‘‘European Taxation Under an ‘Open’ Sky: LOB
Clauses in Tax Treaties Between the U.S. and EU Member
States,’’ Tax Notes Int’l, July 5, 2004, p. 45, at 48; Kofler,
‘‘Treaty Shopping, Quota Hopping and Open Skies,’’ in: Lang
and Jirousek, Praxis des Internationalen Steuerrechts (2005),
pp. 211, 219; Haug, ‘‘The United States Policy of Stringent
Anti-Treaty-Shopping Provisions: A Comparative Analysis,’’
29 Vand. J. Transnat’l L. (1996), pp. 191, 198; Berman and
Hynes, ‘‘Limitation on Benefits Clauses in U.S. Income Tax
Treaties,’’ 29 Tax Management International Journal (2000),
pp. 692, 700.
May 8, 2006
•
517
LOB clause in the Germany-U.S. treaty.116 That
clause was unprecedented and unique117 in the
German treaties until the conclusion of the
Germany-Singapore treaty in 2004.118 It says, in the
unofficial translation, ‘‘This Convention shall not be
construed so as to prevent a Contracting State from
applying the provision of its national law on the
prevention of tax evasion or tax fraud.’’ The 2002
protocol amends article 23 providing that ‘‘the German legal provisions for the prevention of tax evasion include the provisions of Section 42 of the
General Tax Code (Abgabenordnung) and paragraph
3 of Section 50d of the Income Tax Law (Einkommenssteuergesetz).’’ Thus, both countries can apply
their domestic anti-treaty-shopping and antiabuse
rules without any restrictions on specific topics as in
the version that had been in force until January 1,
2004.119 Hence, the BFH decision Hilversum II has
the additional effect that it makes transactions of
U.S. MNCs within the scope of the GermanySwitzerland tax treaty easier.
3. Treaty-Overriding
Last, it is not always certain if a tax treaty
ultimately prevails over domestic provisions or if a
domestic provision overrides a tax treaty. The situation is not always as clear as in the GermanySwitzerland tax treaty, which explicitly provides for
an application of domestic provisions.
Under article 28 of the Germany-U.S. tax treaty,
which specifically provides requirements that have
to be met to be eligible for the treaty benefits, most
scholars maintain that if the specific and exclusive
prerequisites of article 28 of the Germany-U.S. tax
treaty are fulfilled, the clause is exclusive and the
benefits have to be granted.120 In turn, beyond the
scope of article 28, domestic rules such as section 42
AO and section 50(d)(3) EStG apply, which means
that the taxpayer is not protected by the treaty.
If a tax treaty does not contain any reference to
domestic antiabuse provisions or an LOB clause as
Special Reports
Table 2. LOB Clauses in U.S. Tax Treaties
With U.S. MNCs’ Favorite Holding Country
Locations
Holding Country
LOB Clause
Netherlands
Art. 26
Luxembourg
Art. 24
Ireland
Art. 23
Bermuda
no treaty
Belgium
Art. 12 A
Switzerland
Art. 22a
Cayman Islands
no treaty
Hong Kong
no treaty
Singapore
no treatyb
a
See Huber and Blum, ‘‘Limitation on benefits according to
article 22 of the convention between the United States of
America and the Swiss Confederation,’’ Internationales
Steuerrecht in der Schweiz (2005), p. 23; Berman and
Hynes, ‘‘Limitation on Benefits Clauses in U.S. Income Tax
Treaties,’’ 29 Tax Management Inernational Journal (2000),
p. 692, 710; Reinarz, ‘‘Treaty Shopping and the Swiss
Withholding Tax Trap,’’ European Taxation (2001), pp. 415,
416.
b
Yet a high-level, government-appointed tax subcommittee
recommended to conlcude a double tax treaty with the U.S.
in 2002. See Ng, ‘‘Singapore’s Non-Garden-Variety
Limitation on Benefits Provisions,’’ Tax Notes Int’l, Dec. 5,
2005, p. 877 (note 3). Singapore wants to rapidly expand its
treaty network of about 50 comprehensive income tax
treaties today.
1. U.S.-Netherlands Treaty
Compared with the LOB clause in the GermanyU.S. treaty, the LOB clause in the Netherlands-U.S.
treaty126 is more advanced. It is more precise and
sophisticated, offers more legal certainty, and complies much better with EC law.127 This is the main
reason why article 26 of the Netherlands-U.S. treaty
(23 pages) and the memorandum of understanding
125
Hey, ‘‘German Tax Court Revamps Treaty Shopping
Law,’’ Tax Notes Int’l, Oct. 10, 2005, p. 122, at 125.
126
Netherlands-U.S. treaty of December 18, 1992, as
amended by the protocol of October 13, 1993, entered into
force on December 31, 1993.
127
For a comparison between the Germany-U.S. treaty and
the
Netherlands-U.S.
treaty,
see
Galavazi,
‘‘Die
Miβbrauchsregelung im neuen DBA USA-Niederlande,’’ Internationales Steuerrecht (1994), p. 225; Berman and Hynes,
(19 pages) are so complex.128 As the Germany-U.S.
treaty set innovative milestones, the NetherlandsU.S. treaty did so as well. Those innovations include
benefits for headquarters companies,129 derivative
benefits, and triangular cases.130 Before the United
States and the Netherlands signed the tax treaty
protocol of 2004,131 the Luxembourg-U.S. treaty had
a considerably broader derivative benefits provision,132 which made Luxembourg more attractive as
a location for intermediate holding companies for
inbound U.S. investments in some situations. With
the new derivative benefits clause, Dutch companies
can be owned by qualifying third-country shareholders and still obtain the benefits of the NetherlandsU.S. treaty. Further, the protocol promotes the Netherlands as a location for intermediate holding
companies for U.S. outbound investments as well,
because it introduced a zero rate of withholding tax
for dividends in 80 percent shareholder relationships.133 That means that Dutch companies can
receive U.S. dividends free of any withholding tax
and vice versa.134
2. Luxembourg-U.S. Treaty
Also crucial for U.S. MNCs is the LOB clause in
article 24 of the Luxembourg-U.S. treaty of 1996.135
The LOB clause was one of the main reasons why
the United States wanted to renegotiate the 1962
tax treaty to prevent or limit ‘‘tax leakage’’ from
treaty shopping.136 The most interesting aspect is
‘‘Limitation on Benefits Clauses in U.S. Income Tax Treaties,’’
29 Tax Management International Journal (2000), pp. 692,
700.
128
Journal (2000), pp. 692, 700.
129
Journal (2000), pp. 692, 700.
130
For more detail, see Berman and Hynes, ‘‘Limitation on
Benefits Clauses in U.S. Income Tax Treaties,’’ 29 Tax Management International Journal (2000), pp. 692, 701.
131
Protocol of March 8, 2004, entered into force on December 28, 2004.
132
Journal (2000), pp. 692, 704.
133
Van Weeghel and van den Berg, ‘‘The New USNetherlands Tax Treaty Protocol,’’ European Taxation (2004),
pp. 386, 391; van der Weijden and Doets, ‘‘The New Protocol
to the Netherlands-United States Tax Treaty,’’ BIFD (2004), p.
304.
134
Van der Weijden and Doets, ‘‘The New Protocol to the
Netherlands-United States Tax Treaty,’’ BIFD (2004), p. 304.
135
Luxembourg-U.S. Income and Capital Tax Treaty of
April 3, 1996, entered into force on January 1, 2001.
136
Warner, Luxembourg in International Tax Planning
(2004), p. 494.
518 • May 8, 2006
Netherlands,125 it is worthwhile to look at the LOB
clauses in the respective treaties with the United
States.
Special Reports
VI. Conclusion
An international tax planner dealing with Germany must be familiar with the anti-treatyshopping and the antiabuse rules to avoid venturing
into uncharted waters.
First and foremost, the tax planner must distinguish between outbound and inbound situations. In
outbound cases, the planning opportunities are better than in inbound cases; for the former, neither
economic nor other nontax reasons are required to
justify the legal planning.138 However, in neither
situation is a letterbox company or a mere formal
interposition of a foreign company accepted for tax
purposes. After all, Hilversum II did not create a
whole new world for tax planning, but a safer world.
Second, the taxpayer should pay attention to LOB
clauses in German and U.S. tax treaties. Even
though they are not the biggest obstacle to tax
planning, their scope and possible interdependencies with domestic antiabuse provisions should not
be underestimated.
Finally, the checklist below should help with
planning more safely. But that is not the end of the
story. Let us see what checklist situation arises
behind the horizon to succeed Hilversum II. At the
137
Journal (2000), pp. 692, 704.
138
end of the day, the outsourcing of permanent holding
activities into an interposed foreign corporation is,
after Hilversum II, an even more promising avenue
on the tax planning road map.
◆
Recommended (English) Literature
Almendral, Violetta Ruiz, ‘‘Tax Avoidance and the European Court of Justice: What Is at Stake for European General Anti-Avoidance Rules?’’ Intertax 2005,
pp. 562-583.
Haase, Florian, ‘‘Dublin Dock Companies and the German Anti-Abuse Provision,’’ 31 Tax Planning International Forum (October 2004), pp. 15-16.
Haase, Florian F., ‘‘Limitation-on-Benefits-Clause in
the U.S./German Double Taxation Treaty,’’ 32 Tax
Planning International Review (January 2005), pp.
26-28.
Hey, Friedrich E.F., ‘‘German Tax Court Revamps
Treaty Shopping Law,’’ Tax Notes Int’l, Oct. 10, 2005,
pp. 122-125.
Kofler, Georg, ‘‘European Taxation Under an ‘Open’
Sky: LOB Clauses in Tax Treaties Between the U.S.
and EU Member States,’’ Tax Notes Int’l, July 5,
2004, pp. 45-89.
Kraft, Gerhard, ‘‘German-Controlled IFSCs Not Abusive,’’ European Taxation (2000), pp. 288-291.
Miles, Andrew, ‘‘Intermediary Dutch Holding Company
Qualifies for Parent/Subsidiary Directive Relief,’’ 32
Tax Planning International Review (2005), pp. 1617.
Rasmussen, Mogens, and Dennis D. Bernhardt, ‘‘The
‘Limitation on Benefits’ Provision in the Tax Treaty
with the United States,’’ European Taxation (2001),
pp. 138-152.
Rosmalen, Norbert J.T., ‘‘The Netherlands: The Preferred Country to Establish an Intermediate Holding Company,’’ 32 Tax Planning International Review (2006), pp. 21-25.
Schaefer, Thomas, and Thorsten Vree, ‘‘German Court
Clarifies Economic Substance Under Antiabuse
Rules,’’ Tax Notes Int’l, Aug. 12, 2002, p. 757.
Sullivan, Martin A., ‘‘Latest U.S. IRS Data Show Jump
in Tax Haven Profits,’’ Tax Notes Int’l, Oct. 18, 2004,
pp. 202-203.
Sullivan, Martin A., ‘‘U.S. Multinationals Move More
Profits to Tax Havens,’’ Tax Notes Int’l, Feb. 16,
2004, pp. 589-592.
Thömmes, Otmar, and Klaus Eicker, ‘‘Limitation of
Benefits: The German View — Sec. 50d(1a) Individual Income Tax Act and EC Law Issues,’’ 39
European Taxation (1999), pp. 9-13.
Thömmes, Otmar, and Katja Nakhai, ‘‘New Case Law
on Anti-Abuse Provisions in Germany,’’ Intertax
(2005), pp. 74-79.
May 8, 2006
•
519
the derivative benefits provision, which attracts
U.S. inbound investments.137 It is very taxpayerfriendly and can be seen as one reason why its
holding location arch-rival the Netherlands designed its new derivative benefits clause to be much
more U.S. investor friendly in the 2004 protocol.
Another important feature of the treaty is the
generous treatment of subsidiaries of publicly
traded companies; however, there are no benefits for
headquarter companies as in the Netherlands-U.S.
treaty.
In brief, the LOB clauses in the Netherlands-U.S.
treaty and the Luxembourg-U.S. treaty exist thanks
to the negotiators from the Netherlands and Luxembourg being not very restrictive; therefore, they do
not constitute a big threat for U.S. MNCs. The
rivalry between Luxembourg and the Netherlands
to attract U.S. investors ensures that those
taxpayer-friendly regimes will not change in the
near future.
Special Reports
Company holds
more than one
participation
+
—
X
Economic Reason
Personnel and
equipment
+
—
X
X
X
X
X
X
X
X
Nontax motives
(group motive,
liability,
organizational)
+
No
‘‘Safe haven’’; far beyond Hilversum
II.
X
X
No
Facts of Hilversum II, no problem
under the new jurisdiction.
X
No
Definitely no economic reason but due
to business activity safe.
No
Economic reason problematic since
‘‘long-term holdings’’ are a striking
feature for the BFH; yet business
activity will more than likely ensure a
happy ending.
X
X
X
X
X
X
X
X
X
X
X
X
520 • May 8, 2006
X
X
X
Critical
After obiter dictum in Hilversum II
business activity likely (+), in that
case no sec. 50d(3) EStG; yet
definitely no economic reason (−).
X
Critical
Business activity (+), economic reason
(−); comprehensive look suggests a
very risky tax planning due to
interdependencies.
X
Critical
Comprehensive look might give green
light for this planning. Yet a tax
planner should try everything to
avoid a short-term holding.
X
Yes
Due to obiter dictum in Hilversum II
business activity rather (+), in this
case no sec. 50d(3) EStG; economic
reason in any case (−); however,
comprehensive look suggests
applicability of anti-treaty-shopping
rule.
X
X
No
After obiter dictum in Hilversum II
business activity likely (+), in any
case economic reason (+), safe.
X
X
No
Similar to the facts in Dutch
Foundation II; moreover after obiter
dictum in Hilversum II business
activity likely (+), in any case
economic reason (+).
X
Likely no
According to obiter dictum in
Hilversum II business activity likely
(+), in that case no sec. 50d(3) EStG;
economic reason in any case.
No
Due to obiter dictum in Hilversum II
business activity likely (+), in that
case no sec. 50d(3) EStG; economic
reason problematical since ‘‘long-term
holdings’’ henceforth a crucial point
for BFH.
X
X
—
Commentary
X
X
X
+
AntiTreatyShopping
Rule sec.
50d(3)
EStG
applies
X
X
X
—
Permanent
nature of the
holding
X
X
X
X
X
Business Activity
Special Reports
Company holds
more than one
participation
+
—
Personnel and
equipment
+
X
X
Economic Reason
—
Nontax motives
(group motive,
liability,
organizational)
+
X
X
X
X
X
—
+
X
X
X
X
Permanent
nature of the
holding
X
X
AntiTreatyShopping
Rule sec.
50d(3)
EStG
applies
Commentary
Likely yes
Similar to the facts in Dutch
Foundation I. Back then limitation of
liability was not a sufficient nontax
reason; after Dutch Foundation II
likely to be sufficient as one of several
motives; if not, comprehensive view
would suggest applicability of
anti-treaty-shopping rule.
X
Likely yes
In spite of the fact that obiter dictum
in Hilversum II suggests business
activity likely to be (+). But:
comprehensive look recommends
anti-treaty-shopping rule.
X
Critical
Rebuttal of the assumption that the
interposition was necessary will be a
long shot; applicability of
anti-treaty-shopping rule possible.
X
Likely yes
Facts of Hilversum I, despite obiter
dictum in Hilversum II very
problematical, since tough to disprove
company was formally interposed.
—
May 8, 2006
•
521
Business Activity

Closer to Haven? New German Tax Planning Opportunities

Transcrição

Documentos relacionados

Deloitte Tax-News: Print

Deloitte Tax-News: Print

directions

Learn German with DW

reflections of an American scientist living in Göttingen

Curriculum Vitae

Worksheet Version

verizon email address

here

German Village Haus und Garten Tour 2012 Advertisement

Essays on Tax Treaties: A Tribute to David A. Ward

Papers on Selected Topics in Negotiation of Tax Treaties